OSC makes statement with broader powers

Ian Telfer: OSC makes statement with broader powers

With the latest in a series of high-profile insider trading cases, the Ontario Securities Commission appears to be extending its reach into other industry practices the regulator deems unacceptable.

Also, by snaring a prominent Canadian businessman for an alleged supporting role, securities lawyers and other industry participants say Canada’s largest capital markets regulator is able to raise the profile of a “garden variety” insider trading case.

On Tuesday the OSC used its “public interest” powers to accuse prominent mining executive Ian Telfer of helping to “facilitate” the actions of others in a sweeping insider tipping and trading scheme dating back to 2007.

What’s unusual about the case is that Mr. Telfer isn’t implicated in the illegal insider tipping and trading case. Rather, he is accused of putting stocks purchased by his friend Eda Marie Agueci, an executive assistant at GMP Securities L.P., in the name of a relative. The OSC also alleges that Mr. Telfer advised her of a method to keep their communications off the GMP server, helping her to “circumvent” the firm’s compliance policies.

It is new ground for the OSC, and observers say it signals how far the market watchdog intends to go to confront the practice of profiting from private business information.

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“They appear … to be extending the scope of regulatory reach to conduct that doesn’t otherwise constitute insider trading,” said Jay Naster, a veteran securities lawyer and partner at Rosen Naster LLP.

While demonstrating seriousness by casting a wide net, the strategy will put the onus on the Commission to demonstrate that the targeted behaviour does not have “benign” explanations, he said.

Cracking down on illegal insider trading has been a recent priority for the OSC, and the Commission has unveiled a handful of marquee cases since Howard Wetston took over as chair of the regulator a little more than a year ago. Among the accused are top-flight lawyers, traders and seasoned executives engaged in high-profile deal-making.

But the regulatory zeal has come with a price for Canadian executives and capital markets participants, according to Toronto lawyer Kent Thomson.

“It has become increasingly troublesome to see the Commission’s public interest jurisdiction being invoked in cases where there is no violation of the Securities Act and where the conduct in question is not even alleged to be abusive of the capital markets,” Mr. Thomson said.

“This leaves members of the business community facing an unbounded jurisdiction of the OSC where they may not know that lines have been crossed until well after the conduct has been engaged it,” he added.

Since the late 1980s, it has been within the OSC’s mandate to go after behaviour that is not in the “public interest,” even if it doesn’t breach specific securities laws. But the use of this power has increased dramatically in the past few years, said Mr. Thomson, who is defending a former mining executive in a separate case launched by the Ontario regulator last month.

Mr. Telfer has denied the allegations against him, including that he advised Ms. Agueci about her use of e-mail to help her conceal activities.

“They say that I was a party to trying to keep something confidential, which I was absolutely not. Absolutely not,” Mr. Telfer said in an interview with the Financial Post.

As for the OSC’s allegation that he helped Ms. Agueci disguise share purchases by putting them in the name of her brother-in-law, Mr. Telfer said putting shares in the name of a relative is “something that’s gets done all the time. There’s nothing wrong with that.”

He added that “what went on after that, or anything else, I was totally unaware of [and] had nothing to do with.”

Mr. Telfer said the OSC is aware of the facts and he is “very surprised at the approach they have taken.”

GMP, one of Canada’s largest independent broker-dealers, issued a statement Tuesday saying that Ms. Agueci has been suspended and that no other employees were involved in the alleged wrongdoing.

The firm’s shares fell Wednesday, dipping 55¢, or 6%, to close at $8.25 on the Toronto Stock Exchange.